Sicsic warns brokers leaseholder commission disclosure sets a ‘precedent’

Sicsic stressed that the FCA’s announcement of brokers facing a near ban on paying commissions to third parties and demanding full commission disclosure to customers is “big news” for intermediaries.

He also cautioned that a number of interventions could change the fundamentals of brokers’ business models.

Sicsic warned that while insurance brokers may be relieved that this latest FCA paper stops short of a cap on commissions, this could potentially follow from the Department for Levelling Up, Housing and Communities.

He said: “Insurance brokers should make no mistake – the FCA is serious about fair value, and it didn’t like what it saw here.

“Brokers should be reviewing all their remuneration arrangements – for all products – and ensuring that they can have the framework to assess and justify their part in the value chain to the regulator’s expected standards.”

Commission disclosure

Commenting on the FCA’s report, Sicsic stated: “This is the introduction of commission disclosure. Today it is just for leaseholders, but it sets a precedent for intervention where the FCA finds harm. And it is something that general insurance brokers have avoided until now.

“It is the first time the FCA has looked at fair value assessments [introduced last year] and acted where they come up short.

“It warns that some of the high commission rates it saw in its 16-firm review were not consistent with fair value and that most brokers did not adequately evidence or assess whether their remuneration represented fair value. Indeed it uses the word ‘disappointing’ three times in relation to the lack of work done by brokers to assess their own remuneration.”

Opaque supply chains

The FCA’s report is a warning about opaque supply chains and a reminder that all parts must be satisfied with the value of the others, according to Sicsic.

He said: “It is also the introduction of a new category of ‘policy stakeholder’ – a person obliged to part of the insurance costs, or who has an interest in or benefits from what is being insured.

“The FCA has extended fair value obligations to policy stakeholders in all insurance markets. The definition is loose and could include all kinds of third parties. This is hugely significant.

“For leaseholders, this is a comprehensive intervention to end spiralling costs and conflict of interests of those choosing the insurance that they ultimately pay for. It is the end of property managing agents, freeholders and landlords taking an unjustified cut.”

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